In the last three sessions, the Nasdaq Composite has suffered two distribution days, and the count now stands at four distribution days over the past few weeks. Depending on how one counts two days of churning, there could be as many as six distribution days on board, which is more than enough to stop a rally.

However, the market has survived heavy distribution counts a few times over the past 20 months, but each time there was enough money rotating out of extended names and into new groups to keep the rally alive. As of right now, commodities are the place to be, led by a monster charge in Coffee ETF ($JO) and DB Agriculture ETF ($DBA). Gold mining stocks have also ripped off the highs ($GDXJ or $GLDX) and could be ready to run higher soon.

We should have more clues regarding the health of the current rally over the next two weeks, as we we see how leading stocks and groups react to the distribution in the Nasdaq.

In sticking with the commodity theme, Global X Lithium ETF ($LIT) recently broke out above a major swing high on big volume.

The weekly chart below shows the bullish action in $LIT since last summer, where it formed a double bottom like pattern and attacked the weekly downtrend line. With support holding at $12, $LIT produced a higher swing low and recently broke out above the prior swing high. The breakout confirmed a reversal of trend:



On the daily chart, we see the bull flag pattern that was created by an explosive price and volume move above the 50 and 200-day MAs. Since then, the price action has traded in a tight range, waiting for the 10-day MA to catch up:



The hourly chart shows the tight price action of the past few days. If yesterday's undercut of the 20-day EMA holds, then $LIT will have a higher low in place on the hourly chart. It is usually the sign of a very strong uptrend, when a stock or ETF rips higher and finds support at or around the 20-period EMA on its first pullback.



Because of the bullish confirmation on multiple timeframes, we have added $LIT to our Wagner Daily watchlist. Subscribing members should note our exact trigger, stop, and target prices in today's report.

Deron Wagner is the Founder and Head Trader of both Morpheus Capital LP, a U.S. hedge fund, and MorpheusTrading.com, a trader education firm.